If Bernice (Whose Utility Function Is Min{x, Y}, Where X

question 30

Multiple Choice

If Bernice (whose utility function is min{x, y}, where x is her consumption of earrings and y is money left for other stuff) had an income of $13 and was paying a price of $2 for earrings when the price of earrings went up to $3, then the equivalent variation of the price change was

• A) $3.25.
• B) $4.33.
• C) $8.67.
• D) $1.63.
• E) $3.79.

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Definitions:

Underlying Asset

The financial instrument upon which derivatives like options and futures are based.

Exercise Price

The price at which the holder of an option can buy (call) or sell (put) the underlying asset.

Municipal Bond

A debt security issued by municipalities to finance public projects, often tax-exempt for investors.

Marginal Tax Bracket

The tax rate that applies to the last dollar of the taxpayer's income, indicating the percentage of tax applied to their highest level of income.